Determinants of Soil Capital

This paper combines knowledge from soil science and economics to estimate economic determinants of soil capital. Explaining soil capital facilitates a better understanding of constraints and opportunities for increased agricultural production and reduced land degradation. This study builds on an unusually rich data set that combines data on soil capital (represented by chemical and physical properties) and economic data on household characteristics, labor supply, crop allocation, and conservation investments. The study yields both methodological and policy-relevant results. On methodology, the analysis shows that soil capital is heterogeneous with soil properties widely distributed across the farms. Likewise, farmers’ investment decisions and soil management vary widely across farms. Hence simplifications of soil capital, which are common in the economics literature, may have limited validity. On the other hand, soil science research, when limited to biological, physical, and chemical characteristics, fails to recognize that soil is capital that is owned and managed by farmers. Such research runs the risk of omitting important socio-economic determinants of soil capital. It also excludes the opportunity to explain some of the dynamics that are determined by soil’s stock character. For policy, this study shows that farmers’ soil conservation investments, allocation of labor, manure and fertilizer inputs, and crop choice do indeed determine variation in farmers’ soil capital. Particularly strong positive effects on key soil nutrients (nitrogen, phosphorus, and postassium) were observed for certain conservation technologies. Extension advice unexpectedly showed no significant effects on soil capital. The wide distribution of soil properties across farms reinforces the need to tailor technical extension advice to the specific circumstances in each farm, and to enhance the integration of farmers’ knowledge and experiences, expert judgment, and scientific soil analysis at the farm level.